Village Funds and Decentralization

Presentation Handout
Group 3:
1. Agustina Nurwahyuni (2)
2. Dinda Azzahra S. (11)
3. Fridolin Phineas L. (19)
4. Herninda Nur Shabrina (20)
5. Intan Adelia Sara (21)
6. Jose Armando Himang (22)
7. Rima Pauliana (32)

1. Village Funds
Village Funds are funds sourced from the State Budget intended for Village and Traditional Village
which are transferred through the District / City Regional Government Budget and are used to finance
government administration, development, and community empowerment. The important focus of the
distribution of funds is more related to the implementation of Village Fund allocations so that they can be
as perfect as the ideas of the initiators. The initial scenario of the Village Fund was provided by replacing
the government program that was formerly called PNPM, but with the enactment of the Village Fund, it
could close the opportunity for some foreign parties to channel funds to regions in Indonesia with actual
programs that could also trigger regional development

In accordance with UU No. 6 of 2014, the Government allocates Village Funds through a transfer
mechanism to the District / City based on the number of villages with regard to the population (30%), area
(20%), and poverty rate (50%). The results of these calculations are also adjusted to the level of
geographical difficulties of each village. The budget allocation as referred to above, comes from Central
Expenditures by streamlining village-based programs equally and equitably. The size of the budget
allocation that is allocated directly to the village is determined to be 10% from and outside the Regional
Transfer funds in stages.

Based on Government Regulation No 60 of 2014 concerning Village Funds sourced from the State
Budget, with the broad scope of the Village's authority and in order to optimize the use of Village Funds,
the use is prioritized to finance the development and empowerment of village communities that remain
in line with the village responsibility.

Village Fund 15 Budget is budgeted for 9,066.2 billion, but in line with the Government's vision to
develop Indonesia from the outskirts of the NKRI framework, the budget plus allocation in the 2015 APBN-
P becomes 20,766.2 billion. In 2016 the Village Fund's budget was allocated at 46,982 billion.

2. The implementation of village funds

Village funds are one of the implementation of fiscal policy in Indonesian. Village funds, which are
set in APBN, are used to finance an infrastructure development and social empowerment. In the
implementation of village funds, there are some infirmities which are in the allocation system of village
funds and the security system of village funds.
The allocation system of village funds are counted based on equitable and fair principles. The
Calculation formula of the system are divided in two which are Based Allocation and Formula Allocation.
Based allocation, which is 90 % of village funds, is shared equally to all regions and formula allocation,
which is 10 % of village funds, considers the village condition such as the amount of inhabitant (25 %), the
region’s area (10 %), the phase of poverty (35%), and the phase of geographical trouble.

3. Regional Expansion and Village Expansion

Regional expansion is defined as the formation of a new autonomous region, which is to improve
the quality of public services in order to accelerate the realization of public welfare.

There are 7 provinces, 135 regencies and 32 cities formed as a result of regional expansion in
Indonesia. An example is Banten Province which is the result of expansion of West Java Province or Riau
Islands Province which is also the result of the expansion of Riau Province.

Many villages are competing to expand themselves. Village expansion occurs because the village
wants to develop the construction itself and wants to get a larger village fund allocation. Moreover, village
funds are projected will continue to increase from 5.6 percent of GDP in 2020.

The example of village expansion is Simpang Raya Village which is the result of the division of
Simpang Kanan Village in West Kalimantan

4. Supervision of Village Fund Use

The results of the study of "Corruption Case Management Trends in 2016" conducted by Indonesia
Corruption Watch (ICW) stated that the phenomenon of corruption in the region was increasingly
widespread after the central government implemented village fund allocation.

Based on data from the Ministry of Finance, in 2016, the total village funds disbursed were around
Rp 47 billion. But in practice, the budget is used for personal gain. It was proven that village funds were
included in the top five sectors that were prone to corruption.

The weakness in the use of the Village Fund in the last three years should receive special attention.
The government must find ways to make use of the Village Fund as optimal as possible so that it is on
target. Communities also have an important role in advancing the welfare of their respective regions. The
village community must also participate in guarding the use of the Village Fund.

5. Decentralization.

Decentralization is the submission of Regional Government authority by the Central

Government to autonomous regions based on the Principle of Autonomy. This understanding is based on
UUD No. 23 2014.
Decentralization is actually an organizational term that is simply defined as the submission of
authority. Decentralization often causes a change in the paradigm of the Indonesian government system.
As explained above, that decentralization relates to regional autonomy. This is the authority of a region
to develop, regulate and manage its own region without any interference or assistance from the central
government.
The existence of decentralization will have a positive impact on the development of
underdeveloped regions in a country so that these regions can become independent regions and can
advance national development.

6. Decentralization in Indonesia

Indonesia is one of the countries with the largest area in the world, with an area of 1,919,440
KM2. With such a vast territory, our country is still a unitary state: the Republic of Indonesia. In running
the government, Indonesia implements a decentralized system that is implemented in the form of
regional autonomy.

This system of central-regional government relations was initially regulated in UU No. 5 of 1974.
The law was an elaboration of the mandate of the 1945 Constitution Article 18 paragraph (2) which states
"Provincial, district and municipal governments regulate and manage their own affairs government
according to the principle of autonomy and co-administration." But in practice what happened at that
time was the central system (control from the center) still used dominantly in planning and implementing
development in Indonesia.

Serious efforts to make decentralization occurred after the new order regime collapsed and
changed to the order of reform. At that time, the Habibie government imposed a new decentralization
law to replace UU No. 5 of 1974, namely by enacting UU No. 22 of 1999 concerning the Regional
Government and UU No. 25 of 1999 concerning Financial Balance Between Central and Regional
Governments.

7. Summary

In summary, both village fund and decentralization are important matter to Indonesia. With the
village funds given by the government, many village are now more developed than before. Village funds
also encourage villagers to keep developing and expanding their village, in order to improve their own
village and to get a larger village fund allocation. The application of decentralization in Indonesia helps
underdeveloped regions in developing their own region so that they can be independent and advance
national development. Decentralization also helps the central government in managing the vast territory
of Indonesia

But, the implementation of the village fund and decentralization are still not perfect. There are
still some corruption cases regarding the village fund program, which makes our nation loses money.
Corruption also arise in decentralized region, because decentralized region are harder to controlled by
the central government.